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Intermediate Accounting Ii Writing Assignment 1

In: Business and Management

Submitted By alderaan20
Words 768
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Chapter 12

1P.

|$ in millions|
Investment in bonds (face amount)|80||
Discount on bond investment||14|
Cash price of bonds||66|

Cash at .04 x $80 million|3.2||
Discount on bond investment|0.1||
Interest revenue at .05 x $66||3.3|

Cash at .04 x $80 million|3.2||
Discount on bond investment|0.11||
Interest revenue at .05 x ($66 + .1)||3.31|

Fuzzy Monkey|
Book Value|
December 31, 2011|
Investment in bonds|$80.00M||
Less: Discount on bond investment ($14 - .1 - .11M)|13.79M||
Amortized cost||$66.21M|

If Fuzzy Monkey had the “positive intent and ability” to hold their securities until they matured, they will be classified as held to maturity and reported at the amortized cost on the balance sheet versus fair value.

Operating cash flows:

Cash inflow from interest - $3.2 + $3.2 = $6.4

Interest revenue using indirect method statement of cash flows- $3.3 + $3.31 = $6.61 net income

Adjustment using above method - ($.21)

Investing cash flows – cash outflow from buying investments of $66

3P.

|$ in millions|

Investment in bonds (face amount)|80||
Discount on bond investment||14|
Cash price of bonds||66|

Cash at .04 x $80 million|3.2||
Discount on bond investment|0.1||
Interest revenue at .05 x $66||3.3|

Cash at .04 x $80 million|3.2||
Discount on bond investment|0.11||
Interest revenue at .05 x ($66 + .1)||3.31|

Fuzzy Monkey|
Book Value|
December 31, 2011|

Investment in bonds|$80.00M|
Less: Discount on bond investment ($14 - .1 - .11M)|13.79M|
Amortized cost|$66.21M|

Fuzzy monkey will report its securities at $70M, the fair value. First we calculate the amortized cost at year end, then add back to the investment $3.79. The fair value will be the sum of these, $70M. This is to recognize $3.79 as the unrealized holding gain since the securities are available-for-sale. It would be…...

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